Why Big Insurance Adores the American Health Care Act

There's been a lot of talk about just who was hurt and helped by Obamacare and who will profit or be imperiled by the next phase of health care legislation. Yet health insurance executives have been curiously silent about the House GOP plan to repeal and replace Obamacare. While the American Medical Association and the American Hospital Association, among many others, have come out against it, insurers have clearly made a strategic decision not to show their hand.

But know this: They love it. Their fingerprints are all over what the Republicans are calling the American Health Care Act. Arguably the only thing they don't like about House Speaker Paul Ryan's Ayn Randish creation is the way the plan would slash funding for the Medicaid program. That's not because insurance executives are more compassionate for the poor than they've been in the past; it's because a growing percentage of their profits now comes from Medicaid. In fact, more than half of the big insurers' revenues is now coming from the government, not the private sector. And they're fine with that.

Make no mistake, health insurance lobbyists also helped shape the Affordable Care Act. Most notably, they were able to get a provision stripped from the bill that would have created a government-run insurance plan (the "public option") to compete with private insurers. But they didn't get everything they wanted.

It gets rid of those pesky new rules on consumer protection

Over insurers' objections, the ACA was enacted with important consumer protections. Thanks to the ACA, insurers can no longer charge older people more than three times as much as younger people for the same policy, and they can't allocate more than 20 percent of what we pay in premiums to profits and administrative activities like sales and marketing. It's also now illegal for insurers to deny people coverage because of a pre-existing condition. And policies sold now must cover several "essential benefits," a provision that outlawed junk insurance.

Now that the insurance executives have more friends in Washington than during the Obama years, they smell an opportunity to get rid of most of those pesky new rules. Don't think for a minute that the ACA's regulations have been a big drag on profits. Even with those consumer protections, most insurance companies have reported record profits during the Obamacare years, and their investors are considerably richer.

The ACA was really the Health Insurance Profit Protection and Enhancement Act

I saw that coming. When I testified before a House committee during the health care reform debate in 2009, I warned that if Congress passed a reform law that did not create a public insurance plan, they might as well rename their bill the Health Insurance Profit Protection and Enhancement Act.

And boy, have those profits been protected and enhanced. Here's just one example: The share price of the biggest health insurer, UnitedHealth Group, has increased more than 1,000 percent since the early days of the Obama administration.

Obama himself had said that a public option was needed "to keep health insurers honest." He was right. Insurance company executives cannot be trusted to put the interests of their customers first. The evidence before Obamacare was abundant, especially in the individual market, where people who can't get health insurance through an employer must go to buy coverage.

In another appearance before Congress, I told the Senate Commerce Committee that during the 20 years I worked for insurance companies, "I saw how they confuse their customers and dump the sick -- all so they can satisfy their Wall Street investors."

Not only were they able to dump the sick through a previously common practice of rescinding coverage when a policyholder was diagnosed with a disease like breast cancer, they did all they could through their extensive underwriting practices to avoid selling coverage in the first place to anyone who might need expensive care.

It was because insurers could declare a significant percentage of the population "uninsurable" and cancel policies when they thought they might have to pay for costly treatments that the individual market pre-Obamacare was quite profitable.

"Enhance shareholder value"

It is a myth that the big for-profit insurers like the ones I worked for have an interest in providing all of us with access to affordable care. That would conflict with their top priority, which, as I quickly learned in my corporate job, is to "enhance shareholder value." That is why several of the big insurers started bailing from the Obamacare exchange markets last year after congressional Republicans eliminated the additional payments the ACA had set aside for insurers while the individual market was becoming more stable, predictable and fair. Never mind those same insurers were reaping big profits from the government's Medicaid and Medicare programs, thanks in large part to the ACA's expansion of Medicaid.

It is also a myth that the for-profits are even still in the insurance business in a significant way. Over the past several years, employers and the government have assumed the risk of insuring most of us. While you might see the name Cigna on your insurance card, if your coverage is through your job, chances are your employer is technically your insurer and Cigna just administers your benefits (for a hefty fee, of course). It's not unusual for more than 80 percent of a big for-profit's revenues to come from these "administrative services only" contracts with employers.

These companies had relatively little interest in the individual market pre-Obamacare because they -- not an employer or government -- would have to assume the risk of paying medical expenses for individual market customers. To reduce the risk of having to pay medical claims, insurers went to great lengths to avoid selling coverage to people who might need it. In my home state of Tennessee, even the big nonprofit BlueCross BlueShield of Tennessee refused to sell policies to more than a third of applicants before the Obamacare rule prohibiting that practice went into effect. And once you were turned down by one insurer, the chances of getting coverage from another company were slim to none. If you had a pre-existing condition pre-Obamacare, the insurance industry could declare you "uninsurable." They might as well have said, "You're dead to me."

Insurers also reduced their risk by charging older people five to 10 times as much as younger people for the same policy. Some states allowed them to charge even more. As a consequence, the "pool" of people in the individual market pre-Obamacare had more young people than today for one simple reason: people in their 40s, 50s and early 60s simply couldn't afford the premiums.

Goodbye individual mandate, hello insurance gap

It is clear House Republicans delegated the drafting of big chunks of their American Health Care Act to insurance industry lobbyists. Yes, their bill gets rid of the much-vilified individual mandate (which insurers insisted be included in Obamacare), but it replaces it with something more profitable to insurers. Under the GOP plan, if there is a gap in your coverage of 63 days or longer, insurers can charge you 30 percent more when you reapply. This is the GOP/insurance industry stick to discourage people from going without insurance. The problem is that many people will go 63 days or longer without coverage because of a job loss. When you're unemployed, being able to pay health insurance premiums can quickly become a financial hardship, if not an impossibility. The tax credits the Republican bill would provide wouldn't be enough to help a lot of people. It's a devious way of eliminating undesirables from the risk pool over time.

The bill would also allow insurers to once again discriminate against older people by allowing them to charge five times more than younger people. And it would give them more "benefit design flexibility" -- an industry euphemism for allowing insurers to once again sell policies with sky-high deductibles and skimpier benefits.

The bill would also allow insurers to spend a smaller percentage of our premium dollars on medical care, freeing up more for profits. And to put a bow around the whole package, the bill would repeal a provision of the ACA that limits to $500,000 the amount of executive pay insurance companies can deduct on their federal taxes.

Now you know why insurers haven't joined doctors and hospitals and many others in condemning the American Health Care Act. Overall, it would be a big win for health insurance companies, the big for-profits in particular. And, of course, their top executives and shareholders.